BONDS COVERING NONQUALIFYING PLAN ASSETS

By Gerri Wheeler

If you have nonqualifying assets in your plan, you now know that the insurance companies are charging higher premiums to cover those assets. Recently, a client of mine received a quote for $3,000 for a one-year bond that covered $1.75 million of assets. In contrast, if he did not have non-qualifying assets, his bond would have been about $600 for a three-year bond, which is an $8,400 difference.

Creative Workaround

Consider obtaining two or more general ERISA bonds from separate approved bonding companies. The IRS issued Field Assistance Bulletin No. 2008-04 that provides guidance to agents who review plans under audit. In that bulletin, guidance states that a plan can obtain multiple bonds from multiple surety companies as long as the company is on the Department of Treasury’s list of certified surety companies.

Let’s take the client referenced in the first paragraph; he could obtain an ERISA fidelity bond for $1,000,000 from his current certified surety company. Then obtain an additional ERISA fidelity bond for $750,000 from another certified surety company.

Alternatively, the plan fiduciary could cover the qualifying assets and specifically designated non-qualifying assets under one ERISA fidelity bond and obtain an additional ERISA bond for the remaining non-qualifying assets from another certified surety company.

Save some money, do some shopping and get the results you want! If you need the Department of Treasury listing, please contact your Consulting Administrator at ACI and they will be glad to provide you with the listing.

References: 29 C.F.R. § 2580.412-21, 29 C.F.R. § 2580.412-20

ACI RENEWS ASPPA RECORDKEEPER CERTIFICATION- STILL IN A CLASS OF OUR OWN

By Yariel Chiong

The Department of Labor (DOL) defines who is considered a Fiduciary to the plan and their responsibilities to plan participants and beneficiaries. As a responsible fiduciary, one of the most important responsibilities is to select a service provider for the plan, gathering information about their business practices and quality of service.

ASPPA and CEFEX have partnered to offer third party auditing of service providers which helps plan sponsors assess the competency of their Third Party Administrators.

ACI has recently undergone the renewal of our ASPPA Recordkeeper Certification. We still maintain as being the only ASPPA Certified Recordkeeper in California. This is a testament to our dedication to our clients and advisors in offering them a firm which is:

1. financially sound
2. following fee disclosure guidelines under the DOL’s proposed 408(b)(2) regulation
3. trustworthy and ethical in its business practices
4. reducing risk for the plan sponsor and their employees
5. using secure IT systems
6. defining quality control and management systems with clear processes and procedures

The certification closely resembles the ISO 9000 certification given to manufacturing firms and is performed by an outside auditing firm. ACI has gone through extensive reviews with 17 critical practices and over 100 separate criteria all to ultimately give our clients peace-of-mind.

Contact an ACI Consultant or Administrator to learn more about why you should be working with an ASPPA Certified Third Party Administrator such as ACI. The proof is in our quality staff and their work.

Some Funding Relief for Defined Benefit Plan Sponsors

By Yariel Chiong & Alison Murray

On Friday June 25, 2010, President Obama signed the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (H.R. 3692). This Act gives plan sponsors of defined benefit plans new options for required annual contributions, giving some much needed relief to cash strapped employers hit by the economic downturn.

Under the Pension Protection Act of 2006 (PPA) the difference between the value of benefits earned by participants and the assets in the plan is called the shortfall amortization base. Contributions must be made to the plan to make up this shortfall over a 7 year period.

Single-employer plans are given 2 new amortization options under H.R. 3692 for the shortfall amortization base amount recognized under the ERISA and IRS Code. The “2 Year Plus 7 Year” option gives plans sponsors 2 years of interest-only payments plus an additional 7 years for the remaining balance. The “15 Year” option gives employers 15 years vs. 7 years for payment of the shortfall amortization amount.

This relief is available for any plan year for which the minimum funding deadline has not yet been met (8 ½ months following the end of the plan year). So this relief would apply for plan years ending on or after October 31, 2009 and is available through plan years ending in 2011. If employers choose to apply for 2 plan years they must elect the same type of extension for both years.

Multiemployer plans are given minimum funding requirements determined on a ledger. Under the Act the amortization level may be increased from 15 years to 30 years.

The Act has also extended the Worker, Retiree and Employer Recovery Act of 2008 allowing the funded status determined for 2008 to apply for 2009 and 2010 keeping plans from being frozen if they fall under 60% funded during those years.

Although the new Act does not release employers from their contribution requirements to the plan, it does allow them to free up more cash which may be used for other business expenses.

Contact your ACI Consultant or Administrator for more information and how these changes could be of benefit to your current plan by lowering your minimum required contribution.

Fee Disclosure for the People

By Yariel Chiong

While “fee disclosure” is currently not mandated by government, Chairman of the Committee on Education and Labor, Senator George Miller has been one strong advocate fighting to bring fee disclosure back into the H.R. 4213 bill. The disclosure which was based on the “401(k) Fair Disclosure and Pension Security Act” authored by Senator Miller was included in the May 28, 2010 version approved by the House of Representatives. But as of June 8, 2010, the bill has been stripped of the fee disclosure in the Senate’s version. The 401(k) fee disclosure would have informed plan participants of fees being charged to them by service providers. This fee disclosure will most likely not make it back into the bill.

The reason for the Senate’s exclusion of the provision is because they feel they will derail the Department of Labor’s (DOL) own fee disclosure efforts proposed by regulation 408(b)(2) which will mandate service providers to disclose compensation to plan sponsors once passed.

ACI discloses its fees to plan sponsors. As part of our pro-active company culture we updated our engagement letters over 2 years ago to adhere to the DOL’s proposed regulation on fee disclosure.

Some of the things clients can expect from ACI:

1. Fee transparency allows them to see where their money is going
2. An ethical company which charges fairly for their services
3. We share revenue received from vendors with our clients sometimes covering all of our cost to the client
4. An experienced staff with an average of over 15 years of experience

ACI is on the client’s side. We pride ourselves on being on the forefront of fee disclosure from service providers and will continue to provide you with information on the proposed H.R. 4213 bill and 408(b)(2) regulation.

Contact us if you would like more information on fee disclosure.

IRS Questionnaire Update

By Yariel Chiong

We recently contacted our clients and advisors to let them know that the IRS is conducting a random Compliance Check of 1,200 401(k) Plans. Plan Sponsors who received the questionnaire have 90 days (without) extension to complete and return it. Not completing the questionnaire automatically will result in an IRS audit.

Plan Sponsors should make sure to provide complete and factual answers to the detailed questions regarding their 401(k) plans. Not understanding, or partially answering questions may result in costly enforcement by the IRS. Immediately contact your ACI administrator who can help you answer these questions on a time and charges basis.

The purpose of the IRS questionnaire is to determine the following:

1. Potential compliance issues
2. Any operational Issues
3. Additional education and outreach guidance that may be helpful for the IRS to provide plan sponsors to improve compliance

NOTE: Some multiple question answers provided are unacceptable under the law and will lead to an IRS audit. There are also similar questions repeated throughout the questionnaire, and plan sponsors should be aware of the relationship between the questions. Be careful not to inadvertently answer a question which is legally unacceptable unless it is factually the correct answer.

If you have received a questionnaire contact your plan administrator with the compliance questions. We will answer these questions for you.

Changes to EFAST2 e-signature

By Yariel Chiong

The DOL has announced a new option that allows form preparers, such as ACI, to electronically sign 5500 forms on behalf of the Plan Administrator (client). This new option will be offered to our clients which do not have access to the internet or do not wish to receive signing credentials (User ID and PIN).

EFAST2 which applies to plan years beginning in 2009 states that Forms 5500 and 5500SF must be filed electronically with the Department of Labor (DOL). The Plan Administrator is required to receive signing credentials in order to electronically sign the Form 5500/5500SF posted by ACI to the FT Williams website. The client transmits the signed return to the DOL and also retains a physically signed copy of the return for their records. Instructions on how to electronically file your return were posted on our ACI blog in April and can be viewed at any time.
The EFAST2 I-File system has been updated to include a signing credential for service providers. In order to have ACI electronically sign on behalf of clients the following is needed:

1. Written authorization from the client will be required to allow us to electronically sign on their behalf using our credentials. This is different than the credentials the client receives from the DOL.

2. A paper copy of the Form 5500 must be manually signed by the employer and a pdf copy of the signed copy will be attached to the electronic filing done by ACI. Please note: the image of the first 2 pages of the manual employer signed Form 5500 will be visible on the DOL’s electronic public disclosure website. Having the manual client signature public visible raises the possibility of identity theft.

3. ACI will inform the employer of any inquiries from EFAST2, DOL, IRS or PBGC concerning the filing.

We recommend that plan sponsors still obtain their own signing credentials from the DOL and file their own Form 5500.

We will have more information regarding the new change soon for those clients wishing to have ACI sign the return on their behalf.

IRS Questionnaire

By Tobi Cogswell

The IRS announced last week that it will be sending compliance questionnaires to a number of 401(k) plans. These questionnaires are expected to go out at the end of May. They are 46 pages long. If you get one, you have 90 days (without extension) to complete and return it. Do not ignore it. It was confirmed last week at the NIPA Seminar that if you do not return the questionnaire you will be audited. Contact your plan administrator for help with the compliance questions. We will be happy to help you on a time and charges basis.